Puzzling About Prices (and Popcorn)

As we’ve become more vigilant in our attempt to revive price theory, we’ve been looking back through the archives for supporting material, and this early EconTalk episode with Richard McKenzie was at the top of our list! (We recommend McKenzie’s book Why Popcorn Costs So Much at the Movies, too!)

We invite you to listen (or re-listen!) to this classic episode, and share your responses to the puzzles below. (Bonus points if you include graphs!)

1- The conversation starts with a discussion about the high price of water in California. Why is the price of water so high, if not for a shortage of rainfall?

2- How does flood insurance virtually guarantee more flood damage, and why is flood insurance generally cheaper in a flood zone?

3- McKenzie argues that terrorists killed more Americans after the 9/11 attacks. How could this be?

4- What explains steep price declines in retail after Christmas? Note that Roberts and McKenzie disagree on this answer. What is the nature of their disagreement? Whose solution do you prefer, and why?

This question, even more than the others, may strike you as out of date. So I asked Richard McKenzie how he might update this story. McKenzie is not aware of any follow-up studies of this nature particularly with regard to highway deaths. He no wonders why there have been no follow-up studies on highway deaths, especially given how much more complex econometrics is today than immediately after 9/11? What would you say the answer to McKenzie’s new question would be?

5- Finally, and in a nod to the title of McKenzie’s’ book, why does popcorn cost so much at the movies? How might this relationship have changed since this episode aired, particularly given the advent of streaming?